A ten-year-old boy presented with a prolonged cholestatic liver disease 5 weeks after starting diphenylhydantoin therapy. The initial phase of his illness was characterized by hepatocellular damage with swollen liver cells and centrilobular cholestasis. Severe hyperlipoproteinemia with eruptive xanthomata developed within 3 weeks of his initial jaundice. The second phase of his illness was characterized by portal tract inflammation with bile ductular proliferation and chronic cholestasis gradually resolving over a period of 15 months. It is postulated that diphenylhydantoin sensitivity produced swollen hepatocytes with hypertrophy of the smooth endoplasmic reticulum, reducing hepatic sinusoidal blood flow and the clearance of secondary bile salts. A fall in clearance of lipoproteins, including the cholesterol precursor of primary bile acid synthesis, may have been responsible for a reduction in serum bile acid concentration. High levels of serum lithocholic acid, largely unsulfated presumably due to decreased hepatic uptake, may have produced the prolonged second phase of this illness when histological changes resembled that seen in experimental animals following lithocholic acid administration.